Smart meter manufacturers profit will rise sharply

State Grid recently announced the first tender for smart meters in 2011. It is understood that a total of 12.6 million electricity meters were tendered this time, including 10.53 million smart energy meters. According to the product, there are 9.27 million single-phase smart watches, 1.1 million three-phase smart watches, 15.9 million 0.5S smart watches, and 8018 three-phase smart watches of 0.2S. In addition, 1.93 million single-phase ordinary electricity meters.

According to statistics, the National Grid completed a total of 45.36 million smart meter tenders in 2010, which is approximately 30% more than the 35 million planned for early 2010. According to our understanding, in 2011, the State Grid planned to invite 50 million smart meters, an increase of only 15% from the actual completion of last year. The tender for smart meters accounts for 21% of the planned bid this year. However, due to the tender for the first time in 2011, it is difficult to determine whether the total tender this year will exceed the target size of the beginning of the year.

Judging from the results of the tenders in 2010, the industry is fiercely competitive, and it is difficult to see clearly dominant enterprises in the short term. Under the premise of lower barriers to entry, the company will focus on segmenting high-end products or effectively enhance its overall strength.

Our survey shows that at present, none of the top three companies in the smart meter manufacturing sector is listed, accounting for about 22% of the total, constituting the first echelon of the market. The listed companies Hao Ning Da and Ke Lu Electronics ranked fifth and seventh respectively, and Ke Lu Electronics excels in high-margin, high-precision 0.5S-class products with differentiated routes.

It is worth noting that at the beginning of 2010, the bidding for the State Grid Power Grid won the bid at the lowest price, and the overall gross profit margin of the companies in the industry declined significantly. Taking Hao Ningda as an example, the gross profit margin for the three quarters of last year was 33.95%, down 6.55% from 40.50% in the same period of 2009. Six months later, the State Grid adjusted the bidding model and adopted the "second best price bid." We expect that the adjustment of the bidding model will enable the relevant company's gross profit margin level to gradually recover in the first quarter of 2011. In addition, under the premise that the total amount of tenders for smart meter plans will increase by 15% this year, a sharp rise in profitability will help the relevant companies to deliver outstanding results.

We believe that the current development of the smart meter industry is still in a stage of increase. After the revision of the bidding model in 2010, it left room for profit for the company, and the increase in gross profit rate during the year is relatively certain. In the short term, Ke Lu Electronics and Hao Ningda will be given a “careful overweight” rating.